How Satyam (SAY) Fell Behind

It’s still too early to write a good obituary for Satyam (SAY), the Indian outsourcing firm with completely fraudulent frinancials, because there’s still so much mystery about it all happened. NYT starts to scratch at the problem, and how it fell behind its larger domestic competitors:

NYT: The Indian offshoring industry went through a painful transition in 2004 and 2005, as Western giants like I.B.M. and Accenture started to cut into their business.

But Satyam was slow to transform, in part perhaps because of Mr. Raju’s management style. “He was very old school,” Ms. Karamouzis said. The company’s management, she said, was “very parochial and didn’t embrace change or implement anything differently.”

Customers had complaints. “We are tired of being required to call up the top guy in India to get things resolved,” one Satyam client told Gartner in 2005.

Perhaps to make up for market share it might be losing, Satyam started to undercut its competitors. If the other big outsourcers were charging $27 or $28 an hour, Satyam would charge $21 or $22, Ms. Karamouzis said.

Well, that begins to explain the suspiciously low margins.

Satyam’s abortive attempts to buy some non-related business is still odd:

Many of Mr. Raju’s other business interests, including the construction companies managed by his sons, benefited from state contracts.

Those construction companies helped to set Satyam on its downward spiral. Late on Dec. 16, Satyam said it was planning to acquire two companies, Maytas Properties and Maytas Infra, for $1.6 billion. The two companies are run by Mr. Raju’s sons, and he and his brother Rama Raju had stakes in them.

But when Mr. Raju and his top executives met with shareholders that evening, they were faced with a full-scale revolt. The stock plummeted, leading to the margin calls that led him to admit the fraud, he said in his confession.

Let’s say the shareholders had bought into the bizarre purchases, and had never wondered what a tech outsourcing firm was doing buying property and infrastructure businesses. How would that have changed the fact that the company’s finances were a total lie?